Remembering the Crash of 1987

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

Remembering the Crash of 1987

Post by gkaplan » Fri Oct 19, 2012 1:18 pm

Managing Director Paul Heller heads Vanguard's Retail Investor Group and worked in Vanguard's business planning group in 1987. Like many of his colleagues he helped to answer client phone calls on Black Monday. He recalls the crash of 1987:

https://personal.vanguard.com/us/insigh ... 987-102012

As does Craig Stock, who heads Vanguard's Corporate Marketing and Communications department:

http://www.vanguardblog.com/2012.10.19/ ... roken.html

(Edited first paragraph for clarity. Twice.)
Last edited by gkaplan on Fri Oct 19, 2012 1:37 pm, edited 2 times in total.
Gordon

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Re: Remembering the Crash of 1987

Post by chaz » Fri Oct 19, 2012 1:27 pm

I hope we never see a repeat!
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

M1garand30064
Posts: 84
Joined: Tue Sep 04, 2012 8:49 pm

Re: Remembering the Crash of 1987

Post by M1garand30064 » Fri Oct 19, 2012 1:57 pm

chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D

NYBoglehead
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: Remembering the Crash of 1987

Post by NYBoglehead » Fri Oct 19, 2012 1:58 pm

I hope it doesn't repeat, but if it ever does I'm gonna empty half my emergency fund into the market!

User avatar
bengal22
Posts: 1342
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: Remembering the Crash of 1987

Post by bengal22 » Fri Oct 19, 2012 2:26 pm

M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Re: Remembering the Crash of 1987

Post by chaz » Fri Oct 19, 2012 2:32 pm

bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
I agree.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

jegallup
Posts: 671
Joined: Sat Feb 09, 2008 8:34 pm
Location: San Diego

Re: Remembering the Crash of 1987

Post by jegallup » Fri Oct 19, 2012 2:43 pm

Floyd Norris has an interesting first-hand recollection of it in today's NY Times:

http://www.nytimes.com/2012/10/19/busin ... treet.html

He blames portfolio insurance, which is somewhat reminiscent of credit default swaps.
The 1987 villain was something called portfolio insurance. It was a product that used stock index futures and options to assure institutional investors that they need not worry if market prices seemed to be unreasonably high.

Portfolio insurance would let them get out with minimal damage if markets ever began to fall. They would simply sell ever-increasing numbers of futures contracts, a process known as dynamic hedging.
But he also blames human beings for giving their responsibilities over to computers.
In the aftermath of that crash, program trading became a whipping boy. It was program traders who had sold stocks as futures prices plunged, and a lot of traditional portfolio managers wrongly believed they had caused the debacle. That was a case of shooting the messenger. The real villains were the money managers who had embraced portfolio insurance. Their computers called for selling futures contracts no matter how much that depressed prices, and the buyers of the futures contracts — the program traders — simply did what they needed to do to protect themselves from losses.

M1garand30064
Posts: 84
Joined: Tue Sep 04, 2012 8:49 pm

Re: Remembering the Crash of 1987

Post by M1garand30064 » Fri Oct 19, 2012 3:02 pm

bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
I was one of those people that was close to being wiped out by the 2008 crash. In the end it made me a wise investor and taught me the importance of diversification, and the difference between speculating vs investing. While I wish no ill will on anyone, I'd hope such events will educate the general public on our way of thinking which would likely reduce the frequency and depth of crashes, or at least reduce the harm done to the individual investor.

gwrvmd
Posts: 746
Joined: Wed Dec 02, 2009 8:34 pm
Location: Calabash NC

Re: Remembering the Crash of 1987

Post by gwrvmd » Fri Oct 19, 2012 3:15 pm

To put things in perspective: On Monday Oct 19 1987 the Dow "Crashed" 22.6% or 508 points in one day to 1,739, the largest percent loss in history. The Dow is 13,300 today. Everybody was selling (thats funny, isn't there a buyer for every seller?)
On Thurs Oct 23 the Dow went up 187 points, the largest percent gain in history. The Dow is 13,300 today
Guess what one of the headlines was in the WSJ on Oct 23 1987...."Reagan Reversal - Tax Rise More Likely".
The calendar year 1987 was an up year for the Dow.
The stock market is volatile and cyclic but it never crashes. If you sell, you crash, the market doesn't.......Gordon
Disciple of John Neff

M1garand30064
Posts: 84
Joined: Tue Sep 04, 2012 8:49 pm

Re: Remembering the Crash of 1987

Post by M1garand30064 » Fri Oct 19, 2012 3:20 pm

gwrvmd wrote:To put things in perspective: On Monday Oct 19 1987 the Dow "Crashed" 22.6% or 508 points in one day to 1,739, the largest percent loss in history. The Dow is 13,300 today. Everybody was selling (thats funny, isn't there a buyer for every seller?)
On Thurs Oct 23 the Dow went up 187 points, the largest percent gain in history. The Dow is 13,300 today
Guess what one of the headlines was in the WSJ on Oct 23 1987...."Reagan Reversal - Tax Rise More Likely".
The calendar year 1987 was an up year for the Dow.
The stock market is volatile and cyclic but it never crashes. If you sell, you crash, the market doesn't.......Gordon
And this is the key point. If I could go back in time to 2007 and implanted the knowledge I have now I'd have made a lot of money. Instead I lost my life savings and had to start over, thanks to gambling on financial stocks. Raise your hand if you bought Wachovia stock after the CEO went on Mad Money and said the company was fine and to invest with confidence. <Raises hand> :oops:


When the next one comes I'm confident my three fund portfolio, dollar cost averaging, and bi annual rebalancing strategy will make me a big winner. :sharebeer

Elbowman
Posts: 458
Joined: Tue Apr 03, 2012 2:25 pm

Re: Remembering the Crash of 1987

Post by Elbowman » Fri Oct 19, 2012 3:39 pm

bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
You would give up the equity risk premium for the sake of those who panic? That's... impressively altruistic. Might make retirement difficult though...

btenny
Posts: 4340
Joined: Sun Oct 07, 2007 6:47 pm

Re: Remembering the Crash of 1987

Post by btenny » Fri Oct 19, 2012 7:59 pm

I wonder if the Vanguard Swiss Army tried to talk people out of selling during the big downturn? Does any one know? I know my broker did not talk me out of doing something stupid and it taught me a lot about not panic selling.

Bill

am
Posts: 2464
Joined: Sun Sep 30, 2007 9:55 am

Re: Remembering the Crash of 1987

Post by am » Fri Oct 19, 2012 8:40 pm

87 aint a crash. I still remember the crash of Oct 29' :wink:

lws6772
Posts: 429
Joined: Mon Oct 06, 2008 5:14 pm
Location: Texas

Re: Remembering the Crash of 1987

Post by lws6772 » Fri Oct 19, 2012 8:52 pm

M1garand30064 wrote:
bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
I was one of those people that was close to being wiped out by the 2008 crash. In the end it made me a wise investor and taught me the importance of diversification, and the difference between speculating vs investing. While I wish no ill will on anyone, I'd hope such events will educate the general public on our way of thinking which would likely reduce the frequency and depth of crashes, or at least reduce the harm done to the individual investor.
How were you close to being wiped out?

Rubiosa
Posts: 269
Joined: Mon May 19, 2008 9:58 am

Re: Remembering the Crash of 1987

Post by Rubiosa » Fri Oct 19, 2012 9:06 pm

The '87 crash was the best thing that ever happened to me. As soon as the Dow recovered I divested of
everything that even smelled like a stock, including mutual funds. Never went back, never looked back, never gave it another thought, and today am doing very well, thank you very much.

M1garand30064
Posts: 84
Joined: Tue Sep 04, 2012 8:49 pm

Re: Remembering the Crash of 1987

Post by M1garand30064 » Fri Oct 19, 2012 9:17 pm

lws6772 wrote:
M1garand30064 wrote:
bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
I was one of those people that was close to being wiped out by the 2008 crash. In the end it made me a wise investor and taught me the importance of diversification, and the difference between speculating vs investing. While I wish no ill will on anyone, I'd hope such events will educate the general public on our way of thinking which would likely reduce the frequency and depth of crashes, or at least reduce the harm done to the individual investor.
How were you close to being wiped out?
I lost somewhere in the neighborhood of 90%.

trico
Posts: 684
Joined: Wed Nov 12, 2008 7:04 pm

Re: Remembering the Crash of 1987

Post by trico » Fri Oct 19, 2012 9:23 pm

I think the stats show the period of 1931 was worst, more than 1929, 1987 crash, 2001 bear market and 2008 bear market. Please correct me if I am wrong.

User avatar
SimpleGift
Posts: 2719
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Remembering the Crash of 1987

Post by SimpleGift » Fri Oct 19, 2012 10:09 pm

trico wrote:I think the stats show the period of 1931 was worst, more than 1929, 1987 crash, 2001 bear market and 2008 bear market. Please correct me if I am wrong.
You're right, the loss over the 1931-1932 period was the worst by far, from the 1929 high. However, the frightening aspect of the 1987 crash was that it was so sudden and unexpected, a bit "out of the blue." Fortunately, its complete recovery was also rather quick by comparison, at just two years.



Image



Image



What a gruesome set of charts for an equity investor!
Cordially, Todd

staythecourse
Posts: 5346
Joined: Mon Jan 03, 2011 9:40 am

Re: Remembering the Crash of 1987

Post by staythecourse » Fri Oct 19, 2012 10:40 pm

I will argue that the crash of 87 was no big deal. It is all about selective memory. Everybody loves to quote the market plunging in that single day, but how many remember the time around the period of the crash??

Does anyone remember the market being up some 20-30% for the year prior to the day of the crash?? Does anyone remember by the end of 1987 that stocks were in the positive (I think around +5%) DESPITE the crash coming so late in the year??

1987 is a perfect example of much ado about nothing. If you didn't sell you were fine, so 87 should not be remembered about how volatile stocks are, but another reminder of Jack Bogle's famous line (paraphrasing) "whenever everybody else is doing something the best thing to do is just stand and do nothing. It would have worked in 87, 2000-2, and 2008. Shakespeare could have been talking about stock investing when he talked about "time heals all wounds"

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
Epsilon Delta
Posts: 7064
Joined: Thu Apr 28, 2011 7:00 pm

Re: Remembering the Crash of 1987

Post by Epsilon Delta » Fri Oct 19, 2012 11:18 pm

To further the argument that 1987 was no big deal, 1987 was not a recession. The next recession did not start until 1990, over two years later. The 1990 recession was most likely caused by the savings and loan debacle rather than Black Monday

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Remembering the Crash of 1987

Post by sscritic » Sat Oct 20, 2012 12:09 am

I thought it was a lot of fun. My colleague in the next office and I spent the day updating each other. I admit I laughed a little bit more than he did.

I guess I always realized that markets could go up and down. Down was no surprise to me.

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Remembering the Crash of 1987

Post by sscritic » Sat Oct 20, 2012 12:17 am

The way you lose 90% when the market is down only 22.5% is to use three borrowed dollars for every one of your own.

75 debt + 25 you becomes 75 debt + 2.5 you

At least I think that's how the math works.

29palms
Posts: 358
Joined: Wed Nov 03, 2010 12:31 am

Re: Remembering the Crash of 1987

Post by 29palms » Sat Oct 20, 2012 7:33 am

Great graphs. I remember the crash in 87. I was actually on my way out to Diego Garcia, and I remember them talking about it in San Francisco. Of course, I didn't get any of that because, I knew zilch about stocks. (25 YRS old) Plus I had no money to play the stocks. But I saw San Francisco men at the airport talking about it.

peppers
Posts: 1291
Joined: Tue Oct 25, 2011 7:05 pm

Re: Remembering the Crash of 1987

Post by peppers » Sat Oct 20, 2012 7:56 am

Simplegift. Thank you posting the chart. Looking at 1973-74, it brought back fond memories of getting up early, driving to the gas station and waiting in line to purchase gas.
"..the cavalry ain't comin' kid, you're on your own..."

User avatar
rokidtoo
Posts: 388
Joined: Sun Jul 04, 2010 7:53 am

Re: Remembering the Crash of 1987

Post by rokidtoo » Sat Oct 20, 2012 8:56 am

29palms wrote:Of course, I didn't get any of that because, I knew zilch about stocks.
I was eating at dinner in Cherry Hill N.J. when a bunch of guys came in whining and crying about the day's stock market crash. Since I didn't have any money, let alone any money in the market, I thought it was funny that they were so upset. It meant nothing to me.

Boy, I'd certainly feel different now.-----Jim

User avatar
wilpat
Posts: 534
Joined: Sun Jan 20, 2008 7:30 pm

Re: Remembering the Crash of 1987

Post by wilpat » Sat Oct 20, 2012 10:02 am

I remember a newscaster interviewing a Stock Broker in Chicago the day after the 87 crash. He asked the guy "How did you sleep last night" He responded " I slept like a Baby -- Sleep for an hour and cry for an hour -- sleep for 2 hours and cry for 2 hours etc."
Contrary to the belief of many, profit is not a four letter word!

pkcrafter
Posts: 12390
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Remembering the Crash of 1987

Post by pkcrafter » Sat Oct 20, 2012 10:39 am

Investors who wish for a bone-breaking loss like 1987 don't have the knowledge or experience to appreciate the destruction such events can do. One poster above said he got out of stocks and never went in again. Two others said they lost everything or almost everything. I guess you can argue that those investor had too much risk exposure, and while that's probably true, such crashes are no fun for even those who don't sell.

My personal experience is still clear. Standing outside work at the end of the day waiting for our ride, someone said what had happened that day. The guy next to me, with a look of disbelief in his eyes said, I've been wiped out. What? How? Turned out he had all of his retirement money in futures. Stupid? Of course. The following day when he went home the house was cleared out and his wife and kids gone. Stupid, yes, but no one jumped for joy about their own good investing opportunity. Actually, after a one day plunge like that, the biggest question will be what is going to happen the next day. Is anyone really going to dump a lot of money in the market the following morning? A poster above said '87 wasn't a crash because he remembers '29. so, our ruler of risk is largely based on our own experience. The lesson: many, if not most, untested investors don't have the right yardstick when it comes to risk. Smart investors learn from their experience; wise investors learn from the experiences of others.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

staythecourse
Posts: 5346
Joined: Mon Jan 03, 2011 9:40 am

Re: Remembering the Crash of 1987

Post by staythecourse » Sat Oct 20, 2012 10:44 am

pkcrafter wrote:Smart investors learn from their experience; wise investors learn from the experiences of others.
As thoughtful and true comment as I have ever read. One of the few things I have learned as I have gotten older is a trully wise individual learns from not their mistakes, but those that others have made so he doesn't make the same. History does repeat, doesn't it??

This should be on the bogleheads.org t-shirt (if we ever get a chance to buy one) :D

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

ResNullius
Posts: 2091
Joined: Wed Oct 24, 2007 3:22 pm

Re: Remembering the Crash of 1987

Post by ResNullius » Sat Oct 20, 2012 11:33 am

During 1987, I was flying 4 times a month from NC to California, a couple more times a month to NYC, and a few other times to other places. In short, I was working my butt off at the time. I had my 401K at work, and I paid little or no attention to it at the time. I had an emergency fund in a MM account, and the rest of my savings went to paying off the mortgage as quickly as I could. That was my investment plan at the time, so I didn't really notice the crash other than to note the headlines and hear folks moan. A couple years later, I paid off the mortgage, and then I really started paying attention to the market because I was saving and investing as much as I could, maxing tax-deferred and buidling a taxable protfolio with the extra. We've had numerouse crashes since then, but I stayed the course, so I didn't lock in losses as many of my friends did at the time. Now, I'm 62 and fully retired/disabled due to heart issues, but we hopefully can live comfortably on our portfolio for the duration. Buy and hold, stay the course, and maintain a reasonable asset allocation, and you really can't go wrong. Good luck to us all.

M1garand30064
Posts: 84
Joined: Tue Sep 04, 2012 8:49 pm

Re: Remembering the Crash of 1987

Post by M1garand30064 » Sat Oct 20, 2012 6:01 pm

sscritic wrote:The way you lose 90% when the market is down only 22.5% is to use three borrowed dollars for every one of your own.

75 debt + 25 you becomes 75 debt + 2.5 you

At least I think that's how the math works.
Or pick the wrong individual stocks.

User avatar
BHCadet
Posts: 391
Joined: Sun Jan 15, 2012 12:47 am
Location: SoCal

Re: Remembering the Crash of 1987

Post by BHCadet » Sat Oct 20, 2012 9:31 pm

In the spring of 1987, I got a cold call from Dean Witter and thus began my investment career.
I bought 200 shares of Coleco Industries and $5,000 of Franklin California Tax Free Inc Fund from them.
On the morning of the crash, my manager came around to tell us with a very concerned look.
I sold all my holdings with Dean Witter by the end of the year and started investing in mutual funds on my own afterward.

User avatar
norookie
Posts: 3016
Joined: Tue Jul 07, 2009 1:55 pm

Re: Remembering the Crash of 1987

Post by norookie » Sat Oct 20, 2012 10:13 pm

:oops:
Last edited by norookie on Wed Dec 19, 2012 12:26 pm, edited 3 times in total.
" Wealth usually leads to excess " Cicero 55 b.c

xram
Posts: 780
Joined: Sat Sep 15, 2012 11:36 am

Re: Remembering the Crash of 1987

Post by xram » Sun Oct 21, 2012 8:34 am

NYBoglehead wrote:.........but if it ever does I'm gonna empty half my emergency fund into the market!
+1

Whether I " hope" for something to happen or not happen has no bearing on the event actually happening or not. I refuse to feel guilty for being happy to take advantage of a situation that would benefit my little ones etc...... Sorry ....Ain't gonna happen....
VTI, VBR, VTWV, SCHH, VXUS, VEA, VWO, VSS, FM, VNQI, VBTLX, VFITX, SCHP, VWITX, IBONDS, EEBONDS, EF(EverBank), UTAH-529

ribonucleic
Posts: 72
Joined: Mon Feb 13, 2017 6:07 pm

Re: Remembering the Crash of 1987

Post by ribonucleic » Mon Apr 03, 2017 12:39 pm

I was 20 years old, taking an evening training class to qualify for a New York City taxi driver license.

Not having listened to the news that day, I didn't understand why the instructor joked about expecting a lot of stockbrokers in his next class.

User avatar
VictoriaF
Posts: 17752
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Remembering the Crash of 1987

Post by VictoriaF » Mon Apr 03, 2017 2:27 pm

I am grateful for the Crash of 1987, because it made Nassim Taleb financially independent and enabled him to write his books.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

frugalecon
Posts: 242
Joined: Fri Dec 05, 2014 12:39 pm

Re: Remembering the Crash of 1987

Post by frugalecon » Mon Apr 03, 2017 3:32 pm

I enjoyed going back and watching the episodes of WSW w/ Louis Rukeyser around the '87 crash. Even though in hindsight that show wasn't very BH-ish, I still enjoy his optimism and even the corny jokes.

Dottie57
Posts: 2789
Joined: Thu May 19, 2016 5:43 pm

Re: Remembering the Crash of 1987

Post by Dottie57 » Mon Apr 03, 2017 3:44 pm

bengal22 wrote:
M1garand30064 wrote:
chaz wrote:I hope we never see a repeat!
I do! Go read chapter 8 of "The Intelligent Investor" and you'll see why. :D
Wow, there are actually real human beings who are affected by crashes. While yes they are buying opportunities for those with cash the real hurt they put on people is nothing to wish for. I for one would like a steady, consistent growth in the economy every year. I know corrections are inevitable but I would never wish for deep recessions like 1987 and 2008 and 1929.
+1

In 1987, I had no skin in the game. 1988 brought a 401k to the small employer I worked for. I remember the FA who came to tell employees about the funds in 401k said he didn't open his statements for 6 months after Octpber 1987. He didn't want to be tempted to sell.

User avatar
sometimesinvestor
Posts: 1182
Joined: Wed May 13, 2009 6:54 am

Re: Remembering the Crash of 1987

Post by sometimesinvestor » Mon Apr 03, 2017 4:05 pm

I wrongly sold a balanced fund on Oct 19 in order to buy an aggressive growth fund. It worked out eventually but I have learned it wasn't really clever (the difference between bold and foolhardy is not much ) Why was it wrong? Basically the market hita low about 6 weeks after the crash not the day after and I have learned its usually better to wait. Did you buy in 2008 in November?. Then you did about as well as I did when I purchased in mid april 09 when I was fairly confident we had seen the lows. but i bet i slept better

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: Remembering the Crash of 1987

Post by F150HD » Mon Apr 03, 2017 4:24 pm

will advances in technology have effects on these cycles of rise/fall? frequency? duration? severity? etc

Back in 1987 I'm guessing one had to check the paper for stock quotes. Now you can get them on your phone anytime of day from nearly anywhere on the planet. And you can get info/newsstories almost immediately too, no waiting on a print newspaper anymore.

best2u
Posts: 80
Joined: Tue Jul 28, 2015 12:51 pm

Re: Remembering the Crash of 1987

Post by best2u » Mon Apr 03, 2017 5:48 pm

I was 32 and working for a commercial bank at the time. The brass spent the day on the telephone trying to figure out if this was the beginning of another depression. Young people controlled the institution and we had only heard stories about bank runs before our time. Most of the markets were locked up with no one willing to trade because of fear. The next morning began with a similar story after another lower opening. The Federal Reserve figured out that in the thinly traded markets they could quench the panic by buying futures in Chicago. Their leveraged positions proved too much for the short sellers. After they started buying the local traders found their courage back which revived the markets. Majority of small traders didn't fair too well that attempted to trade. Everyone spent the next couple months predicting when the next shoe would drop. Most expected another selloff. The market of course went on to new highs and punished the popular opinion.

In my personal account I took the advice of the traders of old. "Run quickly or don't run at all." Since it all happened too fast to take any advantage, I just stayed with my positions which probably totaled somewhere around $10,000 at the time. I agree these "events" do more harm than good. For all the efforts to eliminate them, they continue to happen periodically. I am not at all convinced they can be eliminated. So buyer beware. :sharebeer
“There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.” Will Rogers

MnD
Posts: 3168
Joined: Mon Jan 14, 2008 12:41 pm

Re: Remembering the Crash of 1987

Post by MnD » Mon Apr 03, 2017 10:11 pm

Age 25 for both of us. We were 14 months into investing and since July 1986 had settled on an AA and making deposits 50% in a "pure no load" balanced fund and 50% Vanguard Prime Money Market. Having kids and buying a house were in the near to midterm future so we didn't want to get too aggressive. I mailed in monthly deposits to the two funds and they mailed back confirmation statements and another set of deposit envelopes.

For two months after the crash we directed my November and December deposits 100% to the balanced fund. By January 1988 we were back to 50:50 so resumed 50:50 deposits. Not very exciting at the time or in retrospect. Most of our investment news was from Money magazine so it was probably 45 days after the crash until we read any detailed stories about the "crash". :beer
Last edited by MnD on Tue Apr 04, 2017 6:43 pm, edited 1 time in total.

Valuethinker
Posts: 33985
Joined: Fri May 11, 2007 11:07 am

Re: Remembering the Crash of 1987

Post by Valuethinker » Tue Apr 04, 2017 5:19 am

1. we should not assume that the market will simply rebound like it did in 1987. For one thing, the Fed cannot lower interest rates any further (they were c. 8% then, from memory)

2. most of us were relatively young as investors. In retrospect, stocks were cheap, and so buying after that was rewarded. My father made 10x on GE buying it after the Crash.

But what if we had been 60 years old? What would that have felt like? A sudden 22% drop in your standard of living in retirement?

Or imagine going through the 2000-03 bear market in the same situation?

Or the essential bear market from 1966-1980?

You cannot "learn the lessons of history" by cherrypicking what happened in October 1987 and ignoring other bear markets.

You either disregard history as uninteresting, or you consider *all* bear markets for which we have data.


FWIW 9-11 was a bigger shock to the system (for me) because of the human implications and the political fallout after the optimism of the 1990s. And the raging bear market, which was pretty painful and long lived. It really was the end of the 20th Century.
Last edited by Valuethinker on Tue Apr 04, 2017 6:53 am, edited 1 time in total.

McGilicutty
Posts: 143
Joined: Tue Dec 13, 2016 5:24 pm

Re: Remembering the Crash of 1987

Post by McGilicutty » Tue Apr 04, 2017 5:38 am

Valuethinker wrote:Or the essential bear market from 1966-1980?
Pretty decent "bear" market. The CAGR of the S&P 500 from January 1, 1966 to December 31, 1980 was over 6%. I could live with that over the next 15 years.

lazyday
Posts: 3105
Joined: Wed Mar 14, 2007 10:27 pm

Re: Remembering the Crash of 1987

Post by lazyday » Tue Apr 04, 2017 6:35 am

McGilicutty wrote:
Valuethinker wrote:Or the essential bear market from 1966-1980?
Pretty decent "bear" market. The CAGR of the S&P 500 from January 1, 1966 to December 31, 1980 was over 6%. I could live with that over the next 15 years.
That's a nominal rate, right? Inflation was high.

I think both stocks and bonds had terrible performance from the mid-late 1960s to the mid 1980s. 1968 or so was a worse time to retire than 1929, according to some papers on "safe" withdrawal rates.

beammeupscotty
Posts: 181
Joined: Thu Jan 21, 2010 8:13 am
Contact:

Re: Remembering the Crash of 1987

Post by beammeupscotty » Tue Apr 04, 2017 6:38 am

McGilicutty wrote:
Valuethinker wrote:Or the essential bear market from 1966-1980?
Pretty decent "bear" market. The CAGR of the S&P 500 from January 1, 1966 to December 31, 1980 was over 6%. I could live with that over the next 15 years.
Inflation was quite high then, so in real terms it was a 50% loss. Spread out over 15+ years. Ouch.



Image



http://www.multpl.com/inflation-adjusted-s-p-500

Valuethinker
Posts: 33985
Joined: Fri May 11, 2007 11:07 am

Re: Remembering the Crash of 1987

Post by Valuethinker » Tue Apr 04, 2017 6:51 am

McGilicutty wrote:
Valuethinker wrote:Or the essential bear market from 1966-1980?
Pretty decent "bear" market. The CAGR of the S&P 500 from January 1, 1966 to December 31, 1980 was over 6%. I could live with that over the next 15 years.
As per other posters, that's a nominal return, not a real one.

During the overall period there was one nearly 50% drop, around the first Oil Crisis. That was not fun. BTW the UK managed an over 80% drop in that sub period.

The other factor you are missing is tax rates (then) and tax deferred accounts (lack of). Marginal tax rates on dividends and capital gains were far higher and tax deferred accounts much more restricted. So these total return indices that include dividends invested are kind of mythical-- for an individual investor then, that just wasn't the return you achieved.

If you review the 1929-1944 period, you see overall a recovery BUT that would not have been what it felt like, because you had the recovery and then the drop, then recovery, then drop in 1938. It was a bad enough rise to scare a generation out of stock market investing.

My guess is you need a period like that or 1966-1980 to end "the Cult of Equities" and set the groundwork for the next bull market. Current valuations of equities are so high that markets will struggle to make single digit total returns in the next few years. 3-5% real return on equities in the next 30 years would be a great result. EDIT: let's be real. 3% real returns. 5% is reaching for it.

If you are 50 or over, now, you don't have time to wait for the next bull market, after a 10+ year bear market. Most of us do not have a control over our final date of retirement either: employment gets terminated, opportunities to be self employed in our professions may be few, and our health may not cooperate.

User avatar
BlueEars
Posts: 3575
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: Remembering the Crash of 1987

Post by BlueEars » Tue Apr 04, 2017 11:06 am

When I recall events like 1987, I like to think that there are perhaps ways to avoid such a drop. In late September 1987 the 10 year Treasury yielded 9.6% when inflation was running something like 4%. Quite a good real yield and so one might have adjusted AA accordingly.

I did not have such a perspective in 1987. Nowadays I'd like to think I'm a bit smarter and there is loads more easily available data then there was back then.

User avatar
jmndu99
Posts: 339
Joined: Sun Jul 14, 2013 4:18 pm

Re: Remembering the Crash of 1987

Post by jmndu99 » Tue Apr 04, 2017 1:03 pm

Thank you OP,

This thread and all replies are probably the biggest " reason that I love this website.

You, who remember this experience are sharing your personal perspectives and educating the rest of us.

I thank all who have shared.

J

User avatar
abuss368
Posts: 12151
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Remembering the Crash of 1987

Post by abuss368 » Tue Apr 04, 2017 1:58 pm

Thank you for sharing.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

User avatar
Tycoon
Posts: 1168
Joined: Wed Mar 28, 2012 7:06 pm

Re: Remembering the Crash of 1987

Post by Tycoon » Tue Apr 04, 2017 6:26 pm

I remember that I had nothing but cash. it was just another day at work.
...I might be just beginning | I might be near the end. Enya | | C'est la vie

Post Reply